On the back of severe anti-Russian sanctions, a number of analysts made grim predictions for Germany whose economy was heavily reliant on Russian cheap petroleum products. Indeed, the largest European economy lost momentum for a while and was even on the verge of a full-blown crisis. In reality, none of the forecasts have proven true. Germany’s economy was not hit by any upheaval. The country miraculously evaded the Ice Age in 2023/23 and did not run out of electricity after the embargo had been imposed on Russian oil and gas. Nevertheless, Berlin has not fully tackled its economic woes yet. Germany’s GDP has been shrinking for two quarters straight. A deeper slowdown could be on the horizon.
According to the federal statistics office (Destatis), the national economic output contracted by 0.3% in Q1 2023 following a 0.5% decrease in Q4 2022. In theory, negative GDP readings over two consecutive quarters mean a technical recession. The culprit for a slowdown in Germany’s economy was a surge in electricity prices due to Berlin’s refusal to buy Russian energy. Experts caution that the powerhouse of the European economy is running the risk of an economic crisis unless a solution to the gridlock is found. In turn, the whole EU economy will have to deal with the grave fallout. Curiously, the German authorities do not share pessimistic forecasts. In April, the government upgraded twice the GDP outlook for 2023 to 0.4% from the 0.2% expected in January. Federal Minister for Economic Affairs Robert Habeck admitted that the projected economic growth was certainly tepid compared to GDP rates in favorable periods. Still, it showcases a notable improvement in economic sentiment in contrast to the major concern voiced in the winter. The cabinet of ministers expects economic growth to accelerate to 1.6% in 2024.
